China still behind Japan economically
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The first is the so-called Latin American pattern. Economies in South American countries, like Brazil and Argentina, bogged down when per capita GDP reached $5,000 because the alliance formed by the government and interest groups strangled economic vitality and growth power.
The second is the Japanese-type bubble economy. The government's long-term obsession with loose monetary policy will finally lead to an asset price bubble that an economy cannot withstand.
Unlike Russia, China embarked on the road of gradually advanced reform at the beginning of the reforms and opening up. The biggest problem of progressive reform is the easy shaping of various interest groups, which hinder further reform. Trammeled by the formidable interest groups, there are still some uncertainties about whether China can engage in smooth reform in terms of economy, society and politics. So, now is not the time for us to get uppish.
Japan has entered an aging society, but before that they got rich. Though Japan experienced the bursting of the real estate bubble, it was at a time when the nation's per capita GDP had reached $20,000.
So, if China cannot rein in its monetary policy in the future, the nation's looming assets bubble might collapse when per capita GDP is at about $4,000 to $5,000. If the bubble bursts and leads to recession, we have to face the challenge of "aging before getting rich".
Finally, it should be pointed out that although both China and Japan have continuing current account surpluses, in the latter's current account surplus the proportion of investment returns has already surpassed the trade surplus contribution.
China's oversea investment return, on the other hand, has just turned into positive from loss. Moreover, despite both countries' huge oversea net assets, Japan's foreign exchange assets are mainly possessed by domestic residents and enterprises, while the majority of China's are under the control of the government. Compared with Japan, China still has a long way to go in saving a fortune for the people and storing foreign exchange assets in the people.
The author is an economist with Institute of World Economics and Politics under the Chinese Academy of Social Sciences.
